Foster's closer to snaring Southcorp

Page Tools

Foster'SsGroup has stitched up 80.7 per cent of Southcorp, with
its $3.2 billion offer for Australia's biggest wine company closing
today.

Foster's will start rolling the two businesses together once it
gets to 90 per cent, when it can compulsorily acquire the rest of
the producer of Penfolds, Lindemans and Rosemount.

The deal will transform Foster's into the world's second-largest
listed wine company after US drinks giant Constellation Brands.

However, Foster's share price has fallen more than 10 per cent
since the company launched its hostile takeover bid in January
because of concerns it would struggle to extract synergies.

Australia's wine industry is grappling with a global glut and a
stronger dollar. As well, retailers are giving wine companies less
shelf space by introducing home brands.

Foster's shares slipped 3 ¢ to close at $5.28
yesterday.

Foster's has not detailed the size of the synergies it could
extract, but Southcorp has put these as high as $160 million.

But in a note to clients, Macquarie Equities forecast gross
synergies of only $80 million.

"We expect that this will be partially offset by a $40 million
earnings reduction due to market share loss," Macquarie said.

It forecast an additional $10 million earnings loss because of
discounts.

Macquarie said Foster's trading terms with retailers had been
more generous than Southcorp's and retailers would expect this to
continue.

Foster's also would need to increase its investment in
Southcorp's underperforming brands, Macquarie said. "While FGL is
enjoying strong wine shipments in the US, we believe the risk of
this acquisition balances out the positive news," it said.